4 of 20

Contractual Arrangements

Contractual arrangements are written agreements between two or more parties, such as a client and contractor, which are enforceable by law.
The project’s contractual arrangements are designed to ensure a successful delivery of the service or project and the level of control the client will have over the project work.

Benefits:

To minimise the level of risk and improve the level of communication, its details and content.
To promote the delivery of products to satisfy both parties and state the expected business benefits and value for the money that the project will produce.

Video: Critical construction contract terms

5 of 20

The payment method

Choices of contract types

Contract strategy (policies and procedures) to implement client requirements regarding a project.

Type of contract (lump sum, re-measurement, cost reimbursement) is instrumental in the decision as to which form of contract (NEC, JCT, RIBA, FIDIC, ICC, etc.) a client prefers. Furthermore, a client’s choice of finance, design, operation, and management of a project could influence the options/strategies of contract (Design and build, BOOT, BOO, construction management, term contract, turnkey, etc.) available to them.

Payment can be based either on prices submitted by or agreed with the contractor or on the actual costs which the contractor incurs.

The main choices are:

Priced-based (lump sum, measure and value)
Cost-based (target cost, cost reimbursable)

6 of 20

Types of Contracts �(Based on Pricing/Cost Mechanism)

Fixed Price or Lump Sum	Guaranteed Maximum Price (GMP)	Target Price or Cost
Contractor agrees to complete work for a set price Client pays agreed sum regardless of actual costs Contractor bears most of the financial risk The client does not inherently share in any savings the contractor achieves Suitable for well-defined projects with minimal expected changes	Contractor commits to a ceiling price Client pays actual costs up to the agreed maximum Savings often shared if project comes in under budget The contractor bears the risk if the project costs exceed the agreed-upon GMP.	Initial target price agreed upon Actual costs tracked during project Savings or overruns shared based on pre-agreed formula Encourages collaboration and efficiency

7 of 20

Types of Contracts �(Based on Pricing/Cost Mechanism)

Cost Reimbursable (Also known as a cost plus contract)	Remeasurement (Also known as measure-and-value’)/Unit Price
Contractor paid for actual costs plus agreed fee Client bears most of the financial risk Suitable for complex or uncertain projects Requires transparent cost reporting and management	It relies on actual quantities of work measured and valued at agreed rates Calculation of the actual quantities of work ordered on the contractors in order to certify the payment due to a contractor Suitable for projects where the design or type of work can be described, but the amount required is difficult to assess until after the works have begun, such as excavation or certain types of maintenance work Allows for flexibility in project scope

8 of 20

Which contract type(s) is attractive to employers and contractors? Why?
Why is target price/cost said to have contractors and clients’ interest in alignment?
If we are delivering linear projects (roads, rails, etc.), which contract type will be most useful, and why?
Why do you think cost-reimbursable is attractive to contractors?

QUIZ

9 of 20

Options/Strategies of Contract

Traditional Procurement Route

Also called ‘design bid build’ or ‘bid build’.
The client first appoints professional consultants, such as architects and engineers, to develop a full and detailed design for the project, including drawings, specifications, work schedules and bills of quantities
Once the design information is complete, contractors are invited to tender to carry out the construction work in accordance with the client’s design.

Design and Build Contract

Used for projects where the contractors will carry out both the design and the construction work.
Suitable if a quick deadline is needed or special design and construction provisions needed.

10 of 20

Options/Strategies of Contract

Turnkey Contract/ Engineering Procurement and Construction (EPC) Contract

They are similar to design and build contracts, in that there is a single contract for the design and construction of the project.
The client has less say over the design of the project and the contractor takes more risk.

Build, Own, Operate and Transfer (BOOT) Contract

A private organisation undertakes a large project, which they are granted a concession to finance and build by a public sector partner, typically a government department.
The public partner may provide limited funding or other benefits (such as tax exemptions) but the private organisation accepts most of the risks.
The private organisation is then granted the right to own, maintain and operate the project for a set period of time, during which they can draw fees from users of the asset. Once the time period has elapsed, the control of the project transfers to the public sector partner.

Prime Contracting

A form of procurement in which a client hires a single main contractor (prime contractor) who acts as the sole point of responsibility for managing the entire project, including hiring and overseeing subcontractors, to deliver a completed project for the client.

11 of 20

Options/Strategies of Contract

Construction Management Contract

The client directly hires multiple trade contractors, coordinated by a construction manager (CM) acting as an agent for greater control and transparency, especially for complex projects. Both are employed by the client.
The CM is appointed to oversee the completion of the works in the capacity of client’s agent. This involves issuing instructions, preparing certifications, administering contract conditions, etc.

Build – Own – Operate (BOO)

This is a similar structure to BOOT, but the facility is not transferred to the public sector partner.
A BOO transaction may qualify for tax exempt status and is often used for water treatment or power plants.

Operation & Maintenance Contract

A private operator operates and maintains the asset for the public partner. The work is often sub-contracted to specialist maintenance companies.
The payment for this contract is either via a fixed fee, where a lump sum is given to the private partner, or more commonly a performance-based fee: rewards for over-performance or a penalty payment for work which has fallen short.

12 of 20

Small Contracts
JCT Minor Works Contract	JCT Building Contract for Home Owner/ Occupier	RIBA Domestic Building Contract	RIBA Concise Building Contract
Small residential projects <£500,000. Simple projects <1yr. Design work usually completed.�It follows the traditional procurement route.�5% retention.	Small residential projects.�Homeowners deals directly with the contractor.�5% retention.	Small residential projects; renovations, extensions, maintenance & new buildings. Agreement between the client and contractor.�Payment in sections.	Small commercial projects in both private and public sectors.�Payment in sections.

Construction contract

Forms of Contract

13 of 20

Major Projects
JCT Intermediate Building Contract	JCT Standard Building Contract	NEC4 Contract
More detailed than Minor Works Building Contract, but less detailed than the Standard Building Contract.�BOQ & spec provided. Can be used by both private and public employers.	Large or complex construction projects including refurb.�Design work mostly complete,�Some design work part of contract.	Often used by government departments such as local authorities. Public sector projects, new roads, rail lines, nuclear facilities, water utilities, etc.�Lump sum/cost plus contract. Involvement of designers & constructors with projects at least three years after construction completion.

Construction contract

https://www.youtube.com/watch?v=n16xNEjpJHk

Forms of Contract

14 of 20

Describe any:

Two types of contract;
Two forms of contract;
Two types of procurement route/options of contract.

Additionally, discuss, where applicable, the:

- Risk allocation: who bears the risk? client, contractor, or both.

- Benefits/strengths: proactive issue resolution, faster decision making, high transparency with contractors required to share real-time cost and progress data, clear milestones reduce ambiguity, etc.

- Weaknesses/limitations: high levels of trust is required, administrative burden from detailed reporting, frequent audits and open-book accounting, potential lack of transparency leading to late issue identification, etc.

Self-assessment Task

15 of 20

	Major Projects (Additional Info.)
Aspect	JCT Intermediate Building Contract 2016	JCT Standard Building Contract 2016	NEC4 Contract
Description	For small to medium-sized projects, with limited complexity Building works where the employer provides the drawings, and bills of quantities, a specification or work schedules to the contractor. Where the work is to be carried out in sections	- For larger, more complex projects, including refurbishment projects�- A traditional form of contract published in three versions: With Quantities, Without Quantities, and With Approximate Quantities. - Allows for use of provisional sums - Suitable for projects where the design work has been done by or on behalf of the employer, and where the contractor designs a part(s) of the work, and where the work is being carried out in sections	- Published by the Institution of Civil Engineers (ICE) - Collaborative approach or partnership between key parties - Emphasis on project management - Various engineering and construction projects, such as public sector projects, new roads, rail lines, nuclear facilities, and water utilities.
Key parties involved	- Employer�- Contractor�- Architect/quantity surveyor/Contract Administrator (CA) to administer the conditions	- Employer�- Contractor�- Architect/Contract Administrator (CA)�- Quantity Surveyor	- Employer�- Contractor�- Project Manager administer the conditions�- Architects - Supervisor

Construction contract

Forms of Contract

16 of 20

Forms of Contract

	Major Projects
Aspect	JCT Intermediate building contract	JCT Standard building contract	NEC4 Contract
Responsibility for design works	- Primarily employer, unless specified otherwise	- Primarily employer, with options for contractor design portions	- Flexible, can be client or contractor depending on chosen options. The Works Information should state who is responsible for the design of the works
Retention	- Typically 3-5%�- Released in stages. Clause 4.9.2.	- Typically 3-5%�- Released in stages - Clause 4.9.2.1 and 4.18-4.20	- Not standard, but can be included as secondary option. If Option X16 is selected, the employer may withhold retention monies.
Defects rectification	- Defects liability period specified�- Contractor to rectify. - Clause 2.30 and 2.31.	- Defects liability period specified�- Contractor to rectify. The certificate of making good is issued by the architect/CA once all rectification have been made good. - Clause 2.38 and 2.39.	- Defects correction period�- Emphasis on early identification and correction -Clause 40-45. The supervisor notifies the contractor for defects and issues the defects certificate.

Construction contract

17 of 20

	Major Projects
Aspect	JCT Intermediate building contract	JCT Standard building contract	NEC4 Contract
Dispute resolution	- Mediation: Clause 8.1 &( ADR) - Adjudication (Clause 8.2)�- Arbitration (Clauses 8.3-8.8)�- Litigation (article 6)	- Mediation: Clause 9.1 &( ADR) Adjudication (clause 9.2)�- Arbitration (clauses 9.3-9.8)�- Litigation (article 9)	- Dispute resolution hierarchy Option W1 – Adjudication followed by litigation or arbitration Option W2 – used in the UK when the Housing Grants, Construction and Regeneration Act 1996 applies – Adjudication followed by litigation or arbitration.�- Emphasis on early resolution
Payment type	�- Final account - Lump sum or (re)measurement contracts with possibility of interim payments	- Interim valuations�- Final account�	Lump sum, remeasurement or cost plus contract

Forms of Contract

18 of 20

Forms of Contract

Aspect: Flow of information	JCT Intermediate 2024	JCT Standard 2024	NEC4
Decision-Making Speed	Slow (hierarchical approvals). The Architect or Contract Administrator acts as the central authority for issuing instructions, approving variations, and certifying payments	Moderate (multi-tier reviews). The involvement of additional roles, such as the Quantity Surveyor (for cost validation) and the Architect (for design administration), ensures thorough checks.	Fast (proactive Early Warning System; EWS). This requires stakeholders to notify each other of potential risks or issues as soon as they are identified.
Transparency	Limited to contractual needs. Contractors are not obligated to share detailed cost breakdowns or internal data unless explicitly requested.	Document-focused. While it provides more detailed reporting (e.g., through interim certificates and final accounts), transparency is still limited to formal documentation. There is little emphasis on sharing non-contractual information or fostering open communication.	High (shared risk registers). NEC4 promotes open communication through tools like shared Risk Registers and open-book accounting. These mechanisms ensure that all parties have access to critical project information, fostering trust and collaboration.

19 of 20

Forms of Contract

Aspect: Flow of information	JCT Intermediate 2024	JCT Standard 2024	NEC4
Collaboration	Low (adversarial tendencies). Communication is typically reactive, with issues addressed only when formally raised.	Moderate (role-based). The inclusion of roles like Quantity Surveyors and more detailed provisions for contractor-designed portions allows for some level of collaboration. However, the overall structure remains hierarchical and formal.	High (mandatory early warnings). NEC4’s framework is built around collaboration. Tools like Early Warning Systems, shared Risk Registers, and regular programme updates ensure that all parties work together to identify and resolve issues proactively.
Technology Use	Limited (traditional methods). Both forms rely on traditional methods of communication (e.g., written notices, formal instructions). While they can accommodate modern tools like Building Information Modelling (BIM), they do not explicitly mandate their use. Limited		Encouraged (BIM, CDE platforms). These tools facilitate real-time information sharing and improve coordination across disciplines.

20 of 20

References/Bibliography

Designing Buildings Ltd (2020a) JCT construction management contract. Available at: https://www.designingbuildings.co.uk/wiki/JCT_Construction_management_contract (Accessed: 20 November 2022).
Designing Buildings Ltd (2020b) Construction contract strategy. Available at: https://www.designingbuildings.co.uk/wiki/Construction_contract_strategy (Accessed: 20 November 2022).
Designing Buildings Ltd. (2021a) Engineering procurement and construction contract. Available at: https://www.designingbuildings.co.uk/wiki/Engineering_procurement_and_construction_contract (Accessed: 10 November 2022)
Designing Buildings Ltd. (2021b) Build, own, operate and transfer (BOOT). Available at: https://www.designingbuildings.co.uk/wiki/Build,_own,_operate_and_transfer_(BOOT)#:~:text=A%20build%2C%20own%2C%20operate%20and,Public%20Private%20Partnerships%20(PPPs) (Accessed: 10 November 2022)
Cousins, M. (2019) Architect’s legal pocket book. 3^rd edn. Milton Park: Taylor & Francis Ltd.
Hudson Outsourcing (2022) What is selective tendering?. Available at: https://www.tenderconsultants.co.uk/selective-tendering/#:~:text=Selective%20tendering%20is%20sometimes%20referred,being%20suitable%20for%20a%20contract. (Accessed: 10 November 2022)
Service Works Global (2022) Types of ppp contracts. Available at: https://www.swg.com/blog/types-of-ppp-contracts/ (Accessed: 20 November 2022).